National Bank Financial Ltd. v. Potter

National Bank Financial Ltd. v. Potter

The Court found, on the balance of probabilities, that broker Bruce Clarke engaged in a scheme with KHI insiders to support and manipulate KHI share price (using the 540 account), that NBFL failed to properly supervise Clarke and is liable both vicariously and for negligence in respect of claimants harmed by Clarke’s conduct, that some claimants (Dunham, Weir, Blackwood, Barthe Estate) proved causation and recoverable losses while Wadden participated in manipulation and is not entitled to relief, that the regulatory settlement is admissible but the trial evidence establishes the wrongdoing, and that limited punitive damages are warranted given the egregiousness and litigation conduct.

Citation
2013 NSSC 248
Parties
Plaintiff / Defendant by Counterclaim (multiple Actions): National Bank Financial Ltd.; Parent Company / Plaintiff in Related Action: National Bank of Canada; Defendant / Alleged Insider: Daniel Frederick Potter; Defendant / Plaintiff by Counterclaim / Third Party: Calvin W. Wadden; Defendant / Plaintiff by Counterclaim: Craig Anthony Dunham; Defendant / Plaintiff by Counterclaim: Lowell R. Weir; Defendant / Plaintiff by Counterclaim (weir Company): Blackwood Holdings Incorporated; Plaintiff / Third Party Claimant: Estate of the Late Michael Barthe (Barbara Barthe, Executrix); Defendant in Wadden Action: BMO Nesbitt Burns Inc.; Alleged Insider / Counsel to KHI: Blois Colpitts; Broker / Central Alleged Manipulator: Bruce Clarke; Account Vehicle (540 Account) / Alleged Instrument of Manipulation: 2317540 Nova Scotia Limited (Clarke numbered company)
Court
Supreme Court of Nova Scotia
Jurisdiction
Canada
Judgment Date
7 August 2013
Procedural Posture
Multi‑party Civil Securities, Debt and Fraud Litigation / Trial Judgment (supreme Court of Nova Scotia Decision)
Outcome
Partial judgment for claimants: Clarke’s manipulative trading established; NBFL/NBC liable in varying degrees to Dunham, Weir, Blackwood and Barthe Estate; Wadden found to have participated and claims denied; NBFL’s third party claims partially affirmed/denied
Legal Topics
Broker Client Relationship, Market Manipulation, Vicarious Liability, Supervision Obligations, Fraudulent Misrepresentation, Ratification, Admissibility of Settlement Agreements, Damages and Punitive Damages
Source Language
English
Securities Law Tort (negligence, Fraud) Contract Law Fiduciary Law Regulatory Enforcement Broker Client Relationship Market Manipulation Vicarious Liability +5 more

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Parties

National Bank Financial Ltd.

Plaintiff / Defendant by Counterclaim (multiple Actions)

National Bank of Canada

Parent Company / Plaintiff in Related Action

Daniel Frederick Potter

Defendant / Alleged Insider

Calvin W. Wadden

Defendant / Plaintiff by Counterclaim / Third Party

Craig Anthony Dunham

Defendant / Plaintiff by Counterclaim

Lowell R. Weir

Defendant / Plaintiff by Counterclaim

Blackwood Holdings Incorporated

Defendant / Plaintiff by Counterclaim (weir Company)

Estate of the Late Michael Barthe (Barbara Barthe, Executrix)

Plaintiff / Third Party Claimant

BMO Nesbitt Burns Inc.

Defendant in Wadden Action

Blois Colpitts

Alleged Insider / Counsel to KHI

Bruce Clarke

Broker / Central Alleged Manipulator

2317540 Nova Scotia Limited (Clarke numbered company)

Account Vehicle (540 Account) / Alleged Instrument of Manipulation

Procedural Posture

Multi‑party Civil Securities, Debt and Fraud Litigation / Trial Judgment (supreme Court of Nova Scotia Decision)

Legal Issues

  1. 1 Whether broker Bruce Clarke engaged in manipulative trading and market support that created an artificial KHI price
  2. 2 Whether NBFL failed to supervise Clarke and is vicariously liable or negligent
  3. 3 Whether individual claimants (Dunham, Weir, Blackwood, Barthe, Wadden) proved causation and entitlement to damages

Ratio Decidendi

The Court found, on the balance of probabilities, that broker Bruce Clarke engaged in a scheme with KHI insiders to support and manipulate KHI share price (using the 540 account), that NBFL failed to properly supervise Clarke and is liable both vicariously and for negligence in respect of claimants harmed by Clarke’s conduct, that some claimants (Dunham, Weir, Blackwood, Barthe Estate) proved causation and recoverable losses while Wadden participated in manipulation and is not entitled to relief, that the regulatory settlement is admissible but the trial evidence establishes the wrongdoing, and that limited punitive damages are warranted given the egregiousness and litigation conduct.

Court Disposition

Partial judgment for claimants: Clarke’s manipulative trading established; NBFL/NBC liable in varying degrees to Dunham, Weir, Blackwood and Barthe Estate; Wadden found to have participated and claims denied; NBFL’s third party claims partially affirmed/denied

Orders

  • NBFL held vicariously liable for broker Bruce Clarke’s wrongful trading and for failure to supervise in relation to specific claimants
  • Damages awarded to Dunham for loss in share value and related relief plus prejudgment interest and punitive damages (see quantitative data)